Wednesday, January 6, 2010

Japan PM replaces finance minister

Japanese PM Yukio Hatoyama has been forced to replace his experienced finance minister, Hiroshisa Fujii, who has resigned due to ill health.

Naoto Kan has been chosen as the country's new finance minister.

Mr Hatoyama had earlier said he did not want Mr Fujii, one of the few veterans in his Democratic Party-led government, to stand down.

Mr Kan will inherit the job at a time when Japan faces deflation, a fragile economy and huge public debt.

The change of faces in such a key post is being seen as a severe test for Mr Hatoyama - who came into power in September after nearly 50 years of conservative rule and is already suffering from falling ratings.

ANALYSISRoland BuerkRoland Buerk, BBC News, JapanOnce 77-year-old Hirohisa Fujii said he wanted to resign because of ill health, there was little way the prime minister could keep him in office.

Long, gruelling days beckon when parliament convenes the week after next with the budget at the top of the agenda.

The new finance minister, Naoto Kan, has headed a National Strategy Unit that sets fiscal priorities. But he has nothing like the budgetary experience of Mr Fujii.

The question for bond markets is whether he will be able to resist pressure for more government spending, especially if Japan's economy sags towards a double dip recession.

Mr Fujii's departure will add to uncertainty about the new government's ability to handle the economy.

Trusted by the markets for his fiscal restraint, he had been working on a budget which faces a crucial vote later this month, and had resisted pressure from within Japan's governing coalition to spend more on public works.

Mr Kan is unlikely to favour big spending at the moment, either, given that public debt is almost 200% of GDP. But analysts say he may be unable to resist the pressure to release more money if the economy stalls again.

Mr Kan, like Mr Hatoyama, is a founder of the ruling Democratic Party.

He is known for his tough debating skills, and is keen to reduce the political clout of influential bureaucrats.

He previously headed the National Strategy Bureau that sets priorities for fiscal policy, but he is thought by the markets to lack Mr Fujii's extensive experience of budget and tax issues.

Mr Fujii tendered his resignation overnight, after being admitted to hospital last week suffering from high blood pressure.

He had told reporters he was exhausted after weeks of wrangling within Japan's governing coalition to finalise the budget.

Mr Hatoyama then reportedly asked Mr Fujii to stay, to see through his work on the budget. But later the prime minister told public broadcaster NHK: "Problems of health are inevitable... and so I have accepted his resignation."

"Finance Minister Fujii has been exhausted. The doctors' medical certificate said it is difficult for him to execute his official duty as a minister. I have no choice but to take the doctors' diagnosis seriously."

Naoto Kan (archive image)Naoto Kan is a tough debater, but does he have the necessary experience?

When the DPJ came to power in September, after half a century of conservative dominance, it promised to enlarge the welfare state, assert the power of elected politicians over bureaucrats, and move Japan from what it sees as diplomatic subservience to the US to become a leading power in an integrated Asia.

But the party also started its tenure at a time of deep economic uncertainty, according to the BBC correspondent in Japan, Roland Buerk

Japan's debt is already the largest in the developed world, and for years its sustainability was a distant, if constantly nagging worry - much of it is held domestically.

The Japanese were big savers but now the baby boomers are hitting retirement and they are drawing on their nest eggs.

In recent times the Japanese have been saving less even than Americans, our correspondent says.